EIA reports that, in 2018, total dry gas, or consumer-grade natural gas, production in Michigan was 89.525 million cubic feet, ranking Michigan as the 18th largest producer of natural gas in the nation.25 Declining natural gas prices have impacted the profitability of drilling across the nation, and as a result, many companies have reduced the number of conventional drill rigs they have in service. In their place, oil and gas producers are focusing more on hydraulic fracturing, also known as “fracking.” Michigan appears to have been similarly impacted as the number of active conventional drills in the state have decreased by just under 10% since the 2009 high of 10,600.26 Fracking activity in Michigan remains relatively “limited overall compared to the volume of activities in other states.”
Despite declining production in Michigan, as in the rest of the nation, natural gas is playing an increasingly important role in electricity generation. In 2018, it was used to produce over 27% of Michigan’s electricity. Michigan’s utilities have committed to closing the vast majority of the state’s coal-fired electricity generation capacity, and they expect to replace that lost capacity with a mix of natural gas and renewable capacity.
This expectation is being pursued by DTE in the form of its 1.1 GW natural gas plant, the Blue Water Energy Center, that is scheduled to be completed in 2022, in St. Clair County’s East China Township, approximately 50 miles northeast of Detroit. DTE predicts that by 2040 they will rely on a mix of natural gas, nuclear, and renewable sources to cut their CO2 emissions to net-zero by 2050. Consumers Energy has announced plans to close all their remaining coal plants by 2040, and to rely on a mix of renewable energy, demand response, energy efficiency and a reduced amount of natural gas. In February 2020, they announced a further goal to achieve net-zero CO2 emissions by 2040. WEC Energy has closed the coal-fired plant near Marquette and that plant has been replaced with two natural gas plants.
These utility plans are a substantial change for the state. For many years, Michigan relied heavily on coal-fired generation to supply the majority of its electricity, but public concern over climate change, increasingly strict environmental regulation, renewable mandates, heavily subsidized renewable generation and changing market conditions that significantly reduced natural gas prices have pushed Michigan’s utilities to move away from coal.
The benefits associated with using natural gas to produce electricity include a growing supply of a relatively clean and low-cost domestic fuel. As a result of the fracking revolution, natural gas reserves in the United States have grown rapidly. In fact, official estimates were reporting as little as seven to 10 years of remaining natural gas reserves in the early 2000’s. But, the advent and widespread application of fracking technologies in North America have expanded measured natural gas reserves to just under 90 years in the United States. Where the nation had been planning to site liquified natural gas, or LNG, terminals to import LNG in the early 2000’s, we are now building export terminals to supply world markets with American natural gas.
The massive growth of natural gas production in the U.S. has led to a reversal in supply and, as a result, prices for gas have dropped substantially. In the U.S., natural gas prices in July 2008 had peaked at over $13 per MMbtu (one million btus) and typically ranged between $5 to $9 per MMbtu. In the closing months of 2020, natural gas prices have been consistent at around $2.15 per MMbtu.
Natural gas is also a very clean fossil fuel generation option. When used in electricity generation, natural gas emits almost zero particulate matter, and — compared to other fuel options — substantially lower nitrogen oxides, sulfur dioxide or mercury. For those concerned about climate change, natural gas also presents a good option as it emits approximately half as much CO2 as coal-fueled generation, while still ensuring reliable, baseload electric supply.
Some of the challenges associated with using natural gas are that the state is moving in the direction of relying so heavily on this one fuel that there are reasonable concerns about pricing and supply. As the graph above shows, natural gas has historically had a volatile price structure. While the massive increase in natural gas supply has moved the electricity market toward a longer-term commitment to using natural gas, a disruption in supply could potentially cause an upward price swing or force restrictions on energy availability. Given that Michigan’s utilities are all planning to expand their use natural gas as their primary generation fuel, even a small uptick in price could have a large impact on electricity prices or supply for the entire state.
The state had a real-life example of just this type of situation in January 2019. A sudden restriction in supply during an extreme cold spell forced Gov. Gretchen Whitmer to ask Michigan residents to restrict their use of natural gas by lowering their thermostats to 65°F. Extreme cold weather had pushed demand much higher when a fire and explosion at a major natural gas facility compelled utilities to drastically curtail natural gas use across the state. This accident introduced the state to the concept of “demand response,” a situation that occurs when utility customers must reduce overall energy demand to avoid system instability or shutdowns.